Indian Budget 2003-2004

Domestic debt of the Central Government

67. Second, a large proportion of the banks’ holding of Central Government domestic debt, contracted under the high interest regime of the past, is thinly traded. With the softening of interest rates, ordinarily, such loans should command a premium over their face value. In effect though, banks are often unable to encash this because of limited liquidity. The Government therefore, now proposes to offer a buy back of such loans - entirely on a voluntary basis - from banks that are in need of liquidity, or of encashing the premium for making provisions for their non-performing assets (NPAs) thereby improving their balance sheets, or otherwise. The premium to be offered will be set on a transparent basis. If the banks declare the premium received as business income, for income tax purposes, they will be allowed additional deduction to the extent such income is used for provisioning of their NPAs.

State Governments’ debt

68. Third, is the restructuring of State Governments’ debt. Mr. Speaker, Sir, the XII Finance Commission will also be making an assessment of the debt position of the States and suggest such corrective measures as are necessary. Meanwhile, the Central Government and the State governments have mutually agreed to introduce a debt-swap scheme. Out of the total stock of debt of Rs 2,44,000 crore owed by the States to the Government of India, a little over Rs1,00,000 crore bear coupon rates in excess of 13 per cent per annum, a rate that is far in excess of the current market rates. In consequence the interest burden of the States now constitutes a major item of expenditure for them; leaving little for even routine purposes.

69. The debt swap scheme introduced by the Government of India will enable States to prepay high cost debt and substitute them by current, low-coupon-bearing small savings and Open Market Loans. Twenty-six of the twenty-eight States have consented to participate in the scheme from the current year itself, while the remaining two States will join from 2003-04.

70. Over a three-year period ending in 2004-05, all State loans to the Government of India bearing coupons in excess of 13 per cent will have been swapped. In consequence, the States will save, at the very minimum, an estimated Rs 81,000 crore in interest, and deferred loan repayments, over the residual maturity period of the loans. Furthermore, and equally importantly, this scheme will restrain the debt build-up in States through the small savings scheme.

71. Agriculture, the life-blood of our economy, after giving the country adequate food security, is now again at the cross roads, as it prepares to diversify and move up the value chain. It also needs to respond robustly to second generation issues such as land degradation and water logging. Diversification, resonance with market-forces, and a swift adoption of sunrise technologies are the other needs.

72. Mr. Speaker, Sir, India has the largest irrigated, arable landmass in the world; our gross arable land being second only to the United States of America. We must acknowledge the vital import of these facts: they are both an unrecognized, and an unused asset; it is our great reserve. We now need to give it full encouragement.

Diversification into horticulture, floriculture, etc.

73. Promising gains from remunerative agricultural diversification into horticulture, this significant contributor to both GDP, and food and nutritional security, will have to be sustained. With this in view, during the current year, it is proposed to introduce a new Central Sector Scheme on Hi-tech Horticulture and Precision Farming. Major components of the scheme will be use of hi-tech interventions like fertigation, use of biotechnological tools, green food production, and hi-tech green houses. Deployment of precision farming technology aimed at judicious utilisation of resources like land, water, sunlight as well as time, including demonstration of these technologies will also be part of the scheme. I propose to provide, initially, a sum of Rs.50 crore under this scheme.

74. The state of the sugar industry is a matter of serious concern for the government. There is accumulation of stocks in factories, simultaneously with growing arrears of payment for cane supplied by farmers, partly in consequence of soft market conditions. This has both economic and social consequences. In order to provide relief to both the farmers and industry, the Reserve Bank of India has already issued instructions to Cooperative Banks for the conversion of shortfall in margins into medium-term working capital loans, subject of course, to their furnishing adequate security or State Government guarantees. The Reserve Bank of India has also issued instructions to extend the repayment period of medium-term loans to 9 years. In addition, the Ministry of Food and the Ministry of Finance will jointly address the problems of the sugar industry and propose a comprehensive scheme for this important agro-industry soon.

75. Our plantation sector, a hundred and fifty year old agro-industry, is passing through a rough patch, because of price instability in international markets. The Government has already introduced a series of measures to provide relief to small and marginal farmers of plantation crops like tea, coffee and rubber, and help these sectors negotiate the difficult period.

76. With a view to providing stability in terms of income for the small growers, from 2003-04 onwards, Government has announced a Price Stabilisation Fund of Rs.500 crore for the benefit of tea, coffee, and natural rubber growers. The Fund will become operational in 2003-04.

77. In addition, I propose to abolish the excise duty of Re. 1 per kg. on tea and replace it by a cess of Re.1 per kg., for creating a separate fund for development, modernisation and rehabilitation of the tea plantation sector. This measure, Mr. Speaker, will not impose any additional burden on the tea industry, but it will redesign the duty to help the industry. Further, coffee plantations will henceforth be eligible for income tax deduction of sums deposited in a development account, as in the case of tea.

78. India has the world’s largest cattle wealth; it produces more milk than any other country in the world, it has the second largest number of goats and third largest number of sheep in the world. These are great assets. In addition, animal husbandry provides employment to about 20 million, directly and indirectly. But our live-stock quality has deteriorated. Therefore to promote the health of our livestock and give a fillip to animal husbandry and dairying, I propose to reduce the basic customs duty on specified veterinary drugs from 15 per cent to 10 per cent. To promote marine food industry, I propose to reduce the customs duty on shrimp larvae feed from 15 per cent to 5 per cent, and exempt it from CVD.

79. Timely availability of adequate credit is of utmost importance for the development of the rural economy and agriculture. At present Regional Rural Banks, commercial banks and credit cooperatives, encouraged mainly by the Government, undertake this function. I am not satisfied with this arrangement. We can not have a system wherein credit for motor cars is on easier terms than for farm equipment or tractors. Therefore, subject to the Reserve Bank of India’s prudential norms and approvals, private banks will hereafter be encouraged to open branches in rural areas, to service both farm and non-farm sectors there. I will also examine afresh this whole question of franchising agricultural credit, including through Post Offices.

80. The full benefits of the declining rates of interest have not percolated to critical sectors such as agriculture and small-scale industry. This has to be rectified. Therefore, in order to pass on the benefits of lower rates of interest to agriculture and the SSI sector, the State Bank of India has announced an interest rate band of 2 per cent above and below its prime lending rate (PLR) for secured advances. The Indian Bank Association (IBA) is now advising all its member banks to adopt a similar interest rate band. This is a welcome move. Agriculture and SSI will hereafter have to pay no more than an extra 2 percentage points than the best bank customers.

81. The Self-Help Group (SHG)-Bank Linkage Programme being propagated by NABARD, for the last ten years, has been recognized as the largest and fastest growing micro-finance programme in the world. Our expectations of providing bank credit to 1.25 lakh SHGs during the current year have been surpassed once again, and by January 2003, bank credit of Rs.598 crore has already been provided to about 25 lakh poor families through 1.50 lakh new SHGs. The programme has also set in motion the process of women empowerment. However, the spread of the programme across the country has been uneven and has largely remained confined to a few States. I urge all States to vigorously join in our endeavour to make the SHG-Bank Linkage Programme a widespread success.

82. Hon’ble Members no doubt appreciate that despite the grave uncertainties on the oil front, the Government has by and large absorbed the crude price rise. Now, in view of the likely increase in naptha and gas feed-stock, at least the fertilizer subsidy has to be contained. Therefore, the issue price of fertilizers will be raised by a modest amount of Rs.12 for urea, and Rs.10 for DAP and MOP, per 50 kg bag. The price of complex fertilizers will also be suitably modified.

83. The recent drought again brings into sharp focus the need for conserving our water resources. A number of initiatives have already been taken to conserve land and water resources. States are also encouraged to promote drip and sprinkler irrigation through supply of equipment at subsidized rates. But these efforts have to be intensified. Therefore, a bipartisan Task Force, headed by the Chief Minister of Andhra Pradesh, and with a Minister of Agriculture from another State, as one of the members, will be constituted to recommend measures needed to be adopted firstly, to expand the coverage of such irrigation, thereafter to also suggest safeguards so that the intended benefits actually reach the target groups.